This past quarter was the best Massey Knakal has seen since the end of 2008, when Lehman Brothers collapsed and the market stalled.
At a breakfast meeting on Tuesday morning, chairman Bob Knakal announced that property sales had increased by 22% over the last year. “We’ve seen $19.2 billion in sales so far, four times what the sales volume was in 2009,” said Knakal. Citywide, properties sold on average for $12.3 million, just under the average at the peak of the boom.
Though turnover rates weren’t quite what they were in recent decades, they’ve increased 23% since last year to 1.25 %. “We’re on pace to double the sales that occurred last year,” said Knakal. Office buildings dominated the market, accounting for 41 percent of sales volume across the five boroughs. But each submarket had its own strong point.
In Queens, companies seeking warehouse space clamored to snap up the borough’s few remaining industrial properties. Tom Donavan, of Massey Knakal’s Queens division, recently oversaw the sale of a warehouse with 6,000 s/f of office space at 55-14 Grand Avenue in Maspeth for $3 million. “Five or six years ago, we wouldn’t have taken this as a this as a listing,” Donovan said.
In recent years, former manufacturing corridors have been rezoned to allow for the development of luxury towers and parks. “The pockets of industrial that are there — there’s a ferocious appetite for them,” Donovan explained. Prices for such properties, which Donovan calls “recession proof,” are on an upward trend.
In Brooklyn, on the other hand, walkup apartment buildings are leading the way. “We’re seeing a lot of investors coming into Brooklyn, particularly smaller firms,” said Michael Amirkhanian of Massey Knakal’s Brooklyn team. “This is going to be our first billion dollar year since 2008.”
Multifamily properties within a four or five avenue radius of Atlantic Yards are particularly prized, as equity groups expect the area to become hot once the new Nets arena opens. Equally appealing is the area’s proximity to Manhattan, with Wall Street a 15-minute subway ride away.
Though a longer commute, emerging neighborhoods further east have also caught the attention of investors. Walkups in places like Bedford Stuyvesant and Clinton Hill made up 34% of sales in the borough throughout the quarter. Amirkhanian’s team recently sold a property in Crown Heights for $4.5 million, a 20 to 25% increase in value since 2010.
Though downtown Brooklyn is “well-positioned,” according to Amirkhanian, the neighborhood’s seen little activity in recent months. “We think people are smelling cheap bricks, if you will, in pioneering neighborhoods,” he explained.
The same can be said for the Bronx, which drew buyers this past quarter from elsewhere in New York, including Manhattan.
“The Bronx is the cheapest borough to invest in in the city,” said David Simone of Massey Knakal’s Bronx division. “We’ve noticed a lot of interest in the Mott Haven area, closest to Manhattan. People are going there as opposed to Morrisania.”
Mixed-use and multifamily properties on prominent boulevards in the South Bronx are seeing trades of over $300 per s/f, Simone said. Across the borough, property sales increased by 40% since last year. Though a number of buyers ventured out of Northern Manhattan to the Bronx, demand has been high for rental buildings in neighborhoods like Harlem and Washington Heights.
“I have residential brokers calling me all the time, asking for referrals — if landlords have vacant apartments,” said Rob Shapiro of Massey’s Northern Manhattan team. A rental building at 79 West 127th Street, around the corner from celebrity chef Marcus Samuelsson’s Red Rooster café, closed after two weeks on the market. “There was a complete bidding war, with all cash buyers,” said Shapiro. “It’s not going to be converted to condos.”
As in Brooklyn, most of the rental properties sold in Northern Manhattan were walkup apartment buildings. The rest of Manhattan saw the opposite trend. “Elevator buildings saw a big pickup,” said James Nelson of Massey’s Manhattan group. In addition, properties with retail space were coveted by investors. “We’re approaching normalized levels that we saw in 2005,” said Nelson. “Within a year or two, the residential market is looking good.”
In addition to the usual foreign and institutional investors, a handful of buyers were small US-based firms. UDR, a Colorado-based REIT, was responsible for seven percent of Manhattan purchases this past quarter.
One of the firm’s recent portfolio additions was 95 Wall Street, a rental building developed by the Moinian Organization, with a price tag of $326.05 million. “We’re seeing a big trend where tenants are moving from the Upper East and West sides to downtown,” said Nelson.
Throughout Manhattan, “condo conversion underwriting has come to the market again,” said Knakal. However, buyers are taking longer to sign contracts than in previous years, well aware that the market’s path to recovery may hit some bumps.
“Bernanke says interest rates will stay low until 2013,” added Knakal. “We wouldn’t be surprised if that’s incorrect.” Another uncertainty is the job market. Some financial services firms, Knakal said, are on the verge of laying off a significant number of employees. Then there’s the matter of what Knakal calls “zombie” properties in the outer boroughs: distressed assets that can’t be refinanced and can’t be sold.
“Things are progressing nicely from 2009 to the present,” said Knakal. “However it’s important to keep in mind that we’re still 60% below where we were in 2007.”